New Updates: Materials Pricing and Labor
The past year has been one for the books. Trade tariffs, rumors of trade wars, and rising prices of construction goods and materials have kept journalists busy, Twitter abuzz, and the construction industry watching closely. Tariffs have been imposed on steel imports, aluminum imports, and Chinese goods that include construction-related items.
These tariffs, along with a robust market and labor shortage, continue to put pressure on the construction costs. Lenders, contractors, and construction companies should continue to monitor their projects and construction budgets closely.
Prices of materials continue to face headwinds
“Trade tensions and labor shortages are contributing to higher construction prices,” say Associated General Contractors of America (AGC) officials.
From October 2017 to October 2018, the prices of:
- Diesel fuel increased by 27 percent
- Steel mill products increased by 18.2 percent
- Asphalt paving mixtures increased by 11.6 percent, and
- Aluminum mill shapes increased by 8.2 percent.
Over the past 12 months, the cost of all goods and services used in construction increased by 6.6 percent, whereas contractors’ bid prices only increased by 5 percent. Because contractors’ bid prices did not reflect the total increase in cost of all goods and services, further bid-price increases are can be anticipated.
Fatter paychecks for contractors
According to an article by U.S. News & World Report, employers sought to fill 225,000 construction jobs in the first quarter of 2018. However, a survey of 2,700 contractors, builders, construction managers, and trade contractors found that 91 percent had difficulty finding skilled workers.
This shortage of skilled workers has led to significant gains in pay for production and nonsupervisory construction employees. Between May 2017 and May 2018, these workers saw their wages increase by 3.6 percent.
2019 will be the year of fund control
Fund control will become even more critical for lenders and contractors. With QuickDraw fund control, Lenders always have access to real-time project costs Our process requires borrowers to submit draw requests for approval. Proceeds are released only after the documentation has been reviewed and the draw validated.
Further increases in price of materials and labor costs will need to be anticipated and planned for. In these highly uncertain times for the construction industry, fund control will give lenders the information they need to reduce risk and make strong credit decisions.